February 13, 2018 / 8:03 PM / in 5 days

TREASURIES-Yields slip as investors brace for U.S. inflation data

 (Updates prices, table; adds more analyst comments)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Feb 13 (Reuters) - U.S. long-dated Treasury yields
slipped on Tuesday in quiet, rangebound trading, as investors
looked to Wednesday's U.S. inflation report that could shed more
light on the pace of future interest rate increases by the
Federal Reserve.
    Economists expect a 0.3 percent rise in inflation in January
and a core figure of 0.2 percent, according to a Reuters poll.
    Investors started to worry more about inflation after a
prolonged period of stagnant price gains, spooked by robust wage
increases of 2.9 percent in the January U.S. jobs report, and
its impact on borrowing costs.
    That caused sharp volatility in the stock market.
    "We're kind of in a wait-and-see mode for tomorrow's U.S.
CPI (consumer price index) report," said Kim Rupert, managing
director of global fixed income at Action Economics in San
Francisco.
    "There's enough uncertainty with the (inflation) data to
suggest that the average hourly earnings were a one-off thing
and maybe the Fed won't be as aggressive as many fear. I think
the market over-reacted a little bit," she added.
    U.S. 10-year yields, which move inversely to prices, have
risen about 43 basis points so far this year. U.S. 30-year
yields are on a similar path, climbing 39 basis points in 2018. 
    Part of the run-up, however, was not all due to events in
the United States, analysts said. 
    TD Securities interest rates strategist Gennadiy Goldberg
said global central banks such as the European Central Bank and
Bank of England have started to normalize their monetary
policies, pushing yields higher. That has spilled over to the
U.S. Treasury market.  
    "There is a global re-pricing of the quantitative easing
trade," Goldberg said. 
    Analysts have lifted their yield forecast for both U.S.
10-year Treasuries and 10-year German Bunds.
    Danske Bank said in a research note that it believes the
rapid rise in yields is slowing down, but they remain on an
upward track as the global cyclical recovery continues.
    It expects the 10-year Treasury yield to rise to 3.3 percent
on a 12-month horizon, while 10-year Bunds could climb to 1.2
percent, from the current 0.73 percent.
    In late trading, U.S. 10-year yields fell to
2.840 percent from 2.855 percent late on Monday. U.S. 10-year
yields hit 2.902 percent on Monday, the highest since January
2014.
    U.S. 30-year bond yields fell to 3.128 percent,
from Monday's 3.136 percent. The yield on the maturity touched
an 11-month peak of 3.139 percent on Monday.
    
      February 13 Tuesday 2:52PM New York / 1952 GMT
                               Price                  
 US T BONDS MAR8               144-18/32    0-5/32    
 10YR TNotes MAR8              120-248/256  0-20/256  
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             1.58         1.6084    0.007
 Six-month bills               1.7625       1.8031    -0.016
 Two-year note                 99-204/256   2.1061    0.029
 Three-year note               99-212/256   2.3096    0.006
 Five-year note                99-50/256    2.5486    -0.005
 Seven-year note               98-108/256   2.7505    -0.012
 10-year note                  99-56/256    2.8403    -0.015
 30-year bond                  97-128/256   3.1291    -0.007
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        25.50        -2.25    
 spread                                               
 U.S. 3-year dollar swap        18.00        -0.50    
 spread                                               
 U.S. 5-year dollar swap         9.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap        0.75        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -18.00        -1.00    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jeffrey
Benkoe and Susan Thomas)
  
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